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Saugata Roy speaks on The Companies (Amendment) Bill, 2016
FULL TRANSCRIPT
I would like to speak on The Companies (Amendment) Bill, 2016. I do not want this debate to be a partisan debate or a bipartisan debate; I want this to be a general discussion on the problem of companies. Very often, in recent times, problems regarding companies have come up. We had the collapse of Satyam Computers. We had the history of the ponzi companies and, in recent times, what we are hearing very much is about the shell companies that have been floated post demonetisation.
Hon Kirit Somaiya has brought up many issues including pharmaceuticals. My request to him would be to directly go to the Minister. In the Corporate Affairs Department he has got the serious fraud investigation office. If somebody has done wrong, let the Government take action through the SFIO. People belonging to ruling party can always approach the Minister in the party meeting.
Secondly, he mentioned about demonetisation. He says that demonetisation has proved to be correct because of Uttar Pradesh election. This is a trend to relate one thing to another. They will now say that lynching in the name of cows is also supported by Uttar Pradesh; this is also related to victory in Uttar Pradesh election. These are entire different issues.
The bad effects of demonetisation are being felt now. In the first quarter of 2017, already the GDP has gone down by 1 per cent. Small industries have been destroyed altogether. And we have been trying to repeatedly find out that till today how much money has been deposited in the banks after demonetisation. The Governor of Reserve Bank of India has not been able to provide any figures. I do not want to go into those matters.
As I said earlier, this should not be a partisan debate because the Companies Act which was passed during the UPA 2 regime in 2013 was the result of a long discussion. The Bill was introduced in 2011, then it went to the Standing Committee. In 2013, when Veerappa Moily was the Minister followed by Sachin Pilot, the latter piloted the Bill through in 2013. Now that Bill brought a whiff of fresh air because the old company law of 1956 was outdated and was not competent to deal with a liberalised economy. So the 2013 Act was very appreciated in business circles.
When the NDA came to power in 2014 – obviously it was a new government – they wanted to do something. Many people represented to them the problems being faced in the implementation of the 2013 Act. Out of the 470 sections of the Companies Act 2013, 284 sections were already implemented. And the National Company Law Tribunal has now been set up. So there is no problem.
But still when these people – the businessmen, chartered accountants – went to the Finance Minister, he first brought in an amendment in 2015. That amendment was discussed in the Rajya Sabha and they gave certain suggestions regarding the 2015 amendment. At that time the Government set up a committee called the Company Law Committee with chartered accountants, cost accountants, company secretaries and a former High Court Judge, under the chairmanship of Secretary of the Ministry of Corporate Affairs. That committee submitted a report to the Government.
Then the Government introduced the current Bill in 2016. Sir it came to the Standing Committee on April 12, 2016. I am a member of the Standing Committee; we deliberated on the new Bill and we met all stakeholders: FICCI, CII, ASSOCHAM, chartered accountants, cost accountants, Bombay Chamber of Commerce. Then the Standing Committee gave a report under chairmanship of Veerappa Moily. It is in line with that report that the present Bill has been brought in. So, I cannot really object to the structure of the present Bill.
Sir, what are the specialities of this new Company Law? The main object is to improve the ease of doing business so that people who want to start a business – even an one-man company (a startup) do not have to go through much formalities, disclosures or forms. So, the idea is to make the law simple so that only lawyers do not benefit and the companies also benefit.
Now, the amendments proposed are expected to simplify disclosures and compliance requirements for companies. One example is doing away with requirement of Government approval for managerial remuneration and replacing it with the approval to a special resolution by shareholders in General Meeting; it is a good addition.
The Bill has also suggested the simplification of the format of the Board’s report and recommended avoidance of repetitive information. Requirement of filing and extract of annual return as part of the Board’s report has been removed. And exemption has been provided for uploading individual financial statements of step-down foreign subsidiaries by a listed holding company, where consolidated financial statements have been prepared by foreign subsidiaries according to the laws of the relevant foreign country.
In the interest of transparency and fairness, guiding principle for determination of penalties have been introduced, such as the size of company, nature of business, injury of public interests etc. To encourage startups, the Amendment Bill proposes several incentives to startups and small companies. Pre-conditions for a company to be considered small have been relaxed and so has the format of Board’s report, annual return for one per cent companies or small companies. The fine for non-filing of statutory and annual filings have been significantly reduced. They have been provided more avenues to raise a funds which is also a good thing for startups.
Now, one problem is of harmonising laws. There is a Companies Act and there is also the SEBI Act ( Securities and Exchange Board of India Act); they overlap. Now an effort has been made to remove that. The resulting ambiguities of an overlap dissuade companies from complying with relevant laws. The amendments are therefore doing away with dual requirements, especially in the context of several separate prescriptions for prospectus and contents of the Board’s report. Probation of prohibition on forward dealings and insider training has been omitted since these are relevant for listed entities and already regulated by CBI. The companies which are listed are regulated by SEBI so there is no need for keeping them in the Companies Act.
Also, unlisted companies will now be allowed to convene annual general meetings at any place in India, not at their registered office necessarily. The Bill has empowered the Centre to exempt any class of foreign companies from applicability of registration and other requirements provided in the Act. I do not know if this is an unmixed blessing. I have a slight antipathy towards foreign companies, because they are putting money and taking it out. We have no control over that, but the Bill attempts to address provisions that were criticised on the grounds of being erroneous relaxing the restrictions on number of layers of subsidiaries as a much-needed step towards giving company greater freedom in the way they structure themselves. Sir, this Amendment Bill will remove many ambiguities for the current law and streamline its provision with others relevant laws.
Sir, I earlier mentioned that a Company Law Committee was set up by the Government. Certain recommendations of the Company Law Committee have not been incorporated in the Bill. These include issues related to 1) Residence requirement for Directors and 2) Compliance requirement for dormant companies. Sir, also now the new restriction will prevent the company from attracting a talented individual residing from outside India. The committee recommended that the residency required for a foreign national should be removed but that has not been done. The new suggestion was, under 2013 Act any company without transaction for previous two years may apply to obtain the status of a dormant company. The 2013 Act does not exempt such dormant companies from requirement to constitute audit committees. The committee suggested that dormant companies may be exempted from constituting an audit committees as they have no business activities or employees.
Sir, lastly I would like to say the Supreme Court upheld the constitutional validity of the National Company Law Tribunal (NCLT). However, the Court held certain provisions in relation to the qualifications of the technical members of the NCLT – composition chain of the selection committee for appointment of technical members of the NCLT – as invalid. This Bill has modified the provision to bring it in line with the Supreme Court decision, which is a good thing.
Sir, we want good corporate governance in India because when the economy expands and is liberalised, it is necessary to have proper regulation; companies must be allowed the freedom to grow, freedom to invest, freedom to attract investment. The intention of this Bill to improve the ease of doing business. We have to pass the Bill and see what response we get from the corporate world. I hope Mr Arjun Ram Meghwal, who is looking after the Corporate Affairs Department, will use the power of the department to save people. So many people have invested their money in companies who did not pay their depositors . Companies have raised money through so many different trades. The need of the hour is to see that the common citizen of India is free from all these entrapments. With this, I end my speech on the Bill.
Thank you
